Final Agency Determination: FAD-178

Subject: Request dated November 13, 2012, requesting a Final Agency Determination for the 2010 and preceding crop years regarding the interpretation of section 34(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. § 457.8. This request is pursuant to section 506(r) of the Federal Crop Insurance Act (7 U.S.C. 1501-1524.) and 7 C.F.R. part 400, subpart X.

Background:

Section 34(b) of the Basic Provisions states, in relevant part:

34. Unit Division.

(b) Unless limited by the Crop Provisions or Special Provisions, a basic unit as defined in section 1 of the Basic Provisions may be divided into optional units if, for each optional unit, you meet the following:

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(3) You have records, that are acceptable to us, for at least the previous crop year for all optional units that you will report in the current crop year (You may be required to produce the records for all optional units for the previous crop year);

(4) You have records of marketed or stored production for each optional unit maintained in such a manner that permits us to verify the production from each optional unit, or the production from each optional unit is kept separate until loss adjustment is completed by us

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The requestor stated that identical or nearly identical language is set forth in the Crop Revenue Coverage (CRC) and the Revenue Assurance (RA) insurance policies. Accordingly, they request this Final Agency Determination explicitly be made applicable to the CRC and RA policies as well.

Interpretation Submitted:

The first requestor interprets these policy provisions to mean that the production records used to support an optional unit structure for the current crop year and for at least the previous crop year must be verifiable and capable of rendering the exact amount of production from each optional unit. The first requestor does not believe that a record or a combination of records that lead to an estimation of production no matter how reliable or accurate that estimation may be is sufficient to establish and maintain optional units.

The second requestor interprets these policy provisions to mean that the production records used to support an optional unit structure for the current crop year and for at least the previous crop year must be accurate enough to verify the amount of production from each optional unit to a high degree of certainty. Second requestor does not believe that such production records must be capable of rendering the precise amount of production from each optional unit, as, according to the policyholder, this would be nearly impossible due to the distinctive nature of harvesting potatoes.

In sum, second requestor interprets the policy provision at issue to allow for these types of records to establish and maintain an optional unit structure under the above stated policy provisions.

Final Agency Determination

FCIC disagrees with both requestors interpretations.

In accordance with section 34(b)(3) of the Basic Provisions to qualify for optional units, you must provide records “that are acceptable to us, for at least the previous crop year for all optional units that you will report in the current crop year”. This means the policyholder only has to keep separate recrds for optional units for the previous crop year to initially qualify for optional units.
If requested, the policyholder must be able to provide records that reflect they have maintained records of production separately from each unit they wish to insure as an optional unit for the current crop year. In conjunction with section 34(b) of the Basic Provisions, section 10C of the 2008 Crop Insurance Handbook (CIH) (FCIC 18010-02 ) provides procedure to determine acceptable records, by crop, which for certain crops may include Farm Management Records as stated in section 10C(1)(a) of the CIH or Acceptable Verifiable Records as stated in section 10C(1)(b) of the CIH, to substantiate total production and acceptable production evidence from different optional units. If the type of record maintained by the producer qualifies as acceptable under the CIH, the policyholder is eligible for optional units.

Separately, to be be insured and paid an indemnity based on the optional units elected, in accordance with section 34(b)(4) of the Basic Provisions, the policyholder must be able to provide records of marketed or stored production for each optional unit maintained in such a manner that permits the AIP to verify the production from each optional unit, or the production from each optional unit is kept separate until loss adjustment is completed by a loss adjuster. Failure to keep acceptable records of the actual production harvested from each optional unit will result in the combination of affected units. However, what qualifies as acceptable records is determined based on section 10C(1) of the CIH.

Even though 7 C.F.R. part 400, subpart X is only applicable to provisions of the Federal Crop Insurance Act and the regulations promulgated hereunder, and the CRC and RA policies are not codified in the Code of Federal Regulations, to the extent those provisions are identical or nearly identical, this Final Agency Determination applies accordingly to assure consistent, uniform, and equitable treatment to all policyholders insured under the same policy provisions.

In accordance with 7 C.F.R. § 400.765 (c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the crop years the policy provisions are in effect. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).